You are the controller of Classic Toys Ltd. Kathy McDonnell, the president, recently mentioned to you that she found an error in the 2019 financial statements, which she believes has corrected itself. She determined, in discussions with the Purchasing Department, that 2019 ending inventory was overstated by €1 million. Kathy says that the 2020 ending inventory is correct. Thus, she assumes that 2020 income is correct. Kathy says to you, “What happened has happened—there’s no point in worrying about it anymore.”

Instructions
You conclude that Kathy is incorrect. Write a brief, tactful memo to Kathy, clarifying the situation.